Neighborhood Opportunities by Leveraging Downtown Development

March 21, 2019

Summary

The City of Chicago maintains multiple financial instruments for leveraging investment across the city to benefit communities. Passed in May 2016, the Neighborhood Opportunity Fund (NOF) ordinance is an innovative tool to leverage investment from high-density areas for commercial corridor and small business improvements in disinvested communities on the South and West sides. In its first 18 months, the fund received $47.8 million and secured commitments totaling $203 million. After two rounds, approximately $12M in grants have been awarded to 90 small businesses on the South and West sides. The Emanuel administration appropriated $12M for Neighborhood Opportunity Bonus programs in 2019.

Created in 2017, the Industrial Corridor Fund allows the City to mitigate the loss of industrial space in parts of industrial areas that are being converted to non-industrial zoning, such as the North Branch Industrial Corridor. These fees are allocated to a fund used to support and expand the city’s industrial base in other industrial corridors that are not experiencing rezoning.

Open Space Impact Fees are used for open space acquisition and capital improvements in areas experiencing new residential development. Over the years, these fees have been used to provide valuable park space in growing communities.

All three of these programs have positives, but also some significant limitations. We propose changes to the NOF that allow more locally-owned small businesses and start-ups to access this resource and prioritize broader investments across the South and West sides. We propose changes to the Industrial Corridor Fund that will promote transparency and a framework for how the funds are allocated. For Open Space Impact Fees, we propose revisions that would make the fees portable to adjacent communities as well as able to fund activities beyond acquisition and capital improvements.

Neighborhood Opportunity Funds

Because the Neighborhood Opportunity Funds are paid as reimbursement, many small businesses and start-ups without sufficient cash reserves to front-fund the work miss out on this resource. These are the very entities that struggle to attract traditional capital as well, and which this fund is meant to help.

In addition, the city has issued an RFQ to address two issues that NOF grantees have identified: help with managing the contracting and construction processes, and navigating access to lending and capital. The city’s response is to provide Construction Project Managers and Project Lending Coaches to grantees.

Recommendation: Turn the funds into an upfront grant rather than reimbursement to achieve more equitable outcomes.

OR

Recommendation: Make reimbursable grants work better by partnering with CDFIs that can front fund the project at low cost and provide any gap financing that may remain after the use of NOF. The best option here is to pilot the RFQ (Construction Project Managers and Project Lending Coaches) quickly, evaluate the results carefully, prepare upfront capital providers and fully implement both in the next round.

Industrial Corridor Fund

The Industrial Corridor Fund can be used to finance projects and recommendations identified in individual Industrial Corridor Framework Plans. However, overall comprehensive planning for all of the City’s 26 industrial has not occurred. This limits the ability to systematically understand the types of projects that should be prioritized for funding.

In addition, it is unclear how funding determinations are made and the ordinance does not specify the type of funding provided, whether it be grants, reimbursements or loans. Based on available City information to date, no approval of expenditures for funding have been approved by City Council.

Recommendation: Create an overall zoning and land use strategy for all 26 of the City’s Industrial Corridors that considers manufacturing trends and changing demographics in the areas in which they are located.

Recommendation: Continue developing individual framework plans for each individual corridor, but also indicate how projects should be prioritized and how money should be allocated from the Industrial Corridor Fund in order to pay for improvements.

Recommendation: Define parameters around how funds will be distributed and in what form (grants, loans, reimbursements), and then finance projects based on the prioritization process. Make this information publically available.

Open Space Impact Fees

Open Space Impact Fees, as they currently work, are unable to be leveraged for development of open space in any community except for the area in which they originate. In addition, the money can only be used for acquisition and capital improvements. These factors severely limit the type of impact these fees can have on increasing equity in open space creation, programming and stewardship across the City. Tying these fees strictly to residential development and rehabilitation negatively impacts open space in underinvested communities.

Recommendation: Open Space Impact Fee funds should be allocated based on a system that prioritizes community needs for open space, rather than origination of the development fees.

Recommendation: Allowable uses for fees should expand beyond acquisition and capital improvements. There is a legacy of land and water contamination in communities with a history of environmental justice issues that could benefit from a tool to help fund remediation. Additionally, these funds should be used to fund maintenance and programming of open spaces in areas around the City that lack the resources for adequate stewardship.

Timeline

100 Day Actions

Meet with CDFIs to assess ability to front fund grantees

Scope out process for creating a comprehensive plan for the industrial corridor system

First Term Goals

Evaluate financial programs to ensure that they are achieving the goals they were designed for

Additional Considerations

Why the time is right

The City is currently undergoing a review of its 26 industrial corridors and is also in the process of creating a River Ecology and Governance Group to allocate open space impact fees to fund riverfront projects. This moment provides an opportunity to rethink how investment tools can be used to fund and prioritize projects in communities where they are needed most and broaden the type of projects that could be funded.

What it will take

Changes suggested for the NOF do not require an ordinance change, simply a change in practice and partners. Partners include: City of Chicago Dept. of Planning and Development, SomerCorp and CDFIs. Also likely needed: loan loss reserve due to assuming the risk of front-funding.

Recommendations for the Industrial Corridor Fund will require coordination between City departments and agencies regarding how projects should be prioritized and who will take the lead on project implementation.

Open Space Impact Fee changes will require revisions to the ordinance to expand the number of uses as well as where the fees can be used geographically.

Other Considerations

This effort is aligned with the ongoing industrial corridor framework planning led by DPD and the River Ecology & Governance Group led by DPD.

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